What's in It for Me? Professional Penalties and Directors' Incentives to Prioritize Succession Planning
Marcel, Ballinger, and Cowen received CIFM funding to purchase the Board Analyst database from The Corporate Library for use in their research.
Gallmeyer received CIFM funding for to support travel and interaction with his coauthors.
Subprime Delinquency, Default, and Prepayment
The recently passed Dodd-Frank Act will alter the financial landscape in ways that will we can only begin to appreciate. Antje Berndt (Tepper School of Management, Carnegie Mellon University) and McIntire Associate Professor Patrik Sandås study how one important rule change will affect mortgage markets: Dodd-Frank bans charging penalties charged on prepayments of qualified residential mortgage loans. Typical home mortgages are pre-payable without any additional fees, but the freedom to pre-pay is an option that does not come for free. In fact, some observers have argued that the option to agree to a prepayment penalty may make mortgages more affordable to people with poor credit. The project investigates the prevalence, pricing, and outcomes for mortgages with prepayment penalties of different length. The study uses New Century Financial Corporation’s loan database to identify the existence and scope of prepayment penalties for loans at origination between 1997 and 2006. It combines this origination data with data from ABSNET.net, a service that tracks the performance of securitized loans, including delinquencies, defaults, and prepayments. The research will shed light on this controversial topic by showing how borrower behavior and broker compensation evolved with different prepayment, interest rate, and housing price regimes. One output from this project includes the publication "How Subprime Borrowers and Mortgage Brokers Shared the Pie," Real Estate Economics, 2015 (A. Berndt, B. Hollifield, and P. Sandås).
Berndt and Sandås received CIFM funding to purchase the New Century loan data and ABSNET.net databases.
McIntire Associate Professor Patrik Sandås, Andrew Todd (UVA School of Engineering & Applied Science), and Burton Hollifield (Carnegie Mellon) measure the incidence of latency arbitrage for cross-listed stocks around the time of an exogenous shock that made the markets faster. Our sample is from NASDAQ Nordic and consists of Nordic blue chip firms listed and traded in multiple markets. We document a sharp decline in the incidence of cross-market arbitrage opportunities across the Nordic markets for cross-listed stocks from 2009 to 2010 and later. Over the five-year sample period 77% of the observed cross-market arbitrage opportunities occurred in 2009 and 13% in 2010 and the remaining 10% spread over the last three years. The inside spread declines by, on average, 14.5 basis points or 53% from 2009 to 2013. Our results point to significant improvements in market efficiency and market quality as a result of the switch to a faster trading system.
Sandås, Todd, and Hollifield (Carnegie Mellon) received CIFM funding for research support, including data (Reuters, Olsen & Associates), conference travel, data cleaning, and coding assistance.